Is there really a Tablets market?

There is a big debate about the viability of tablets market for vendors apart from iPad. I have heard the phrase many times that

There is no tablets market. It is just the iPad market.

In this article I have attempted to evaluate the above hypothesis and arrive at a conclusion one way or the other.

Current State Analysis:

If we look at the current trends, it would appear that Apple is in a dominant position with no vendor being able to provide a credible alternative. Apple had 67% market share at the end of Q3’2011 and no other vendor was close to it (refer the market share data in the chart below). There are close to 40 vendors on Android platform and their combined share is around 27% (dipped from 30% in Q2’11). The largest Android vendor is Samsung and apart from Samsung (who produces the new 7″ Google Tablet T-Mobile and other popular models) no other vendor has even 1% market share. Motorola Xoom is now not even in the picture. Apple has sold 50 million devices in all till date against the Android sales of 10 million.

RIM and HP had huge plans for the tablets market but within a quarter of launch, HP has decided to quit the market and RIM is struggling. There are indications that RIM might also quit the tablets market if it does not do well after the latest changes in its strategy. Amazon has launched its tablet, kindle Fire but it is yet to hit the market.

All in all, currently there is no player who can even be termed as challenger to Apple.

Future of Tablets

Today, the tablets market is largely undifferentiated with all vendors trying to emulate Apple’s success but this is likely to change very soon as the market matures. I see the following 3 trends emerging that would change the way tablets are market today:

1. Price Discovery: All the vendors attempted to compete with iPad and sold at a similar price. This was a big mistake with the consumers preferring to buy iPad instead of other tablets as the value proposition of other vendors was weak at the same price point. When HP liquidated the stock at $99, their tablets suddenly vanished from the shelves. So much so that HP decided to produce some more tablets. Range of tablets are coming in across various price points mirroring the smartphone market which has products from $100 to $700. RIM has also decided to drop the pricing of the tablets to $249 while Amazon has launched its tablet at $199. I see $100-200 as a very lucrative and viable price segment for tablets. There is certainly a window of opportunity for someone to come up with a low-cost, user-friendly tablet likely built on Android that would have mass market appeal (chances are that it would come from a Chinese vendor).

2. Differentiated Value Proposition: So far the tablets have attempted to target the same consumer segment with similar value proposition. Their attempt has been to be the “Laptop Lite” and replace the netbooks. However, the market is much larger if tablets are not seen as replacement for either smartphones or netbooks. Instead vendors should look at it as a device that has multiple value propositions and we might need different kind of devices to meet those demands. Amazon’s Kindle would appeal to people interest in content and cloud based streaming services while the Chinese players can capture the enterprise segment that need cheap functional tablets. Indian Government’s $35 tablet is a perfect example of targeting a segment (education in this case) with a stripped down tablet.

3. Services Ecosystem: We have all witnessed the success of iPhone and one of the primary reasons for the success of iPhone was the ecosystem that Apple created around the device. Even in tablets, the services ecosystem is likely to play a big role in its success. However, in this ecosystem, the tablets will not be central. Somebody would develop an enterprise application and would sell the device as part of the managed service contract. I see a possibility of a company developing a courier management application on tablets or an order management system thereby creating a huge tablet demand as low end with minimal processing and multimedia capabilities.

Will the iPad party continue forever?

No, I do not think so. Apple is enjoying the high market share till the time people are not able to discover the use of a tablet. Today people are using a tablet as a gaming and browsing device. This is surely going to change once the differentiated value propositions emerge with different use cases. Once the tablets start getting used by sales guys or restaurant order management, the market would surely move beyond iPad.

Kindle Fire is most likely to spoil Apple’s party as it has a very good value proposition in terms of content and has priced the product aggressively. Amazon is subsidizing the Kindle and plans to monetize through content which would be difficult to match by any other competitor except for Apple. In a nutshell, we’re entering a near disposable e-reader/tablet era that will split the market between Amazon (consumption based profits) and Apple (high end brand profits). Every technology company caught in the middle is going to have some serious problems.

I see the Chinese players coming out with cheap tablets and capturing a sizable small and medium enterprise (SME) market. The Chinese players would be very aggressive and would not care so much about the brand and direct distribution as long as they can sell. They would be willing to customize the tablet based on the end user requirements that the bigger players would be reluctant. Their impact on tablets market would be similar to their impact on the mobile phone market.

In the longer term, Android would emerge as the operating system of choice as the cheaper tablets will have no other choice but to go for Android. In the process, the other tablet OS like BBX (RIM Playbook) and WebOS would die the natural death as they lack the applications ecosystem.

In the end, I would say that there is a tablets market besides the iPad market provided the other players create value propositions knowing fully well their strengths and more importantly their brand limitations.

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About The Author

Mohit

Mohit is a telecom professional with rich experience over 15 years. His expertise is in the area of strategy and planning and his work experience includes stints with two of Big 5 consulting organizations, a telecom operator and a handset vendor. Mohit can be reached at mohit@telecomcircle.com

The tablet market along with a range of numerous form-factor devices is still at an early stage of development. This is made possible by the combination of enabling technology and components and the development of a broad, international market that stems from both the 3+ billion mobile phone and large installed base of the UT industry including laptops and PCs. In addition, camera, cloud computing oriented OS and applications, and digital TV have become more developed such that they can help fuel the ‘Seat to the Street’ user experience. Tablets are one ‘screen’ type interface to what is becoming a more intertwined if not yet entirely common experience.

What appears to be on the threshold of emerging is for multiple screens personalized to how the user wishes to organize their personal and group activities across the hardware device types. In other words, the hardware will become less important compared to the integrated environment because it will no longer define the device experience.

Microsoft Windows 8 is an example of what the company calls the most dramatic change in their OS since Windows 95. WIN 8 is said to be the ‘One’ operating system designed for PC, laptop, tablets, and phones. The user may switch between screen personalities and interface types. For example, WIN 8 is designed much for use with touch-screens but a simple desktop tile can be selected to work in a standard keyboard and mouse PC environment.

This increasingly cloud-centric OS offers the potential for a new paradigm in the way users interact across hardware and personal activities: Work, entertainment, school, social networking or collaboration or ‘whatever’ virtualized user environment can be set up similar to having different user accounts except simpler and extended across device types.

The tablet is still a very small fraction of device sales. Thus I think its very early to be calling long term winners or the end of the phenomena. Instead I think this very much the beginning of the shift to device-OS independence and greater harmony.

During the approximately six months since this article was written the emergence of more competitive Android OS tablets has occurred:

– Notepad cellphones with 5.3″ screens. Samsung Galaxy Note has become a popular addition to 4.3″ and smaller screen devices. Samsung’s SmartPhone lineup has overtaken Apple to move into the top spot in combined SmartPhone and pad devices.

– Chinese Android clones based on MediaTek MTK6573 and recently introduced MTK6575 have been introduced with increased screen sizes to take on the pad market. The increasingly capable and competitively priced mobile phone SoCs are now able to be used in notepad scale devices without sacrifice on processor speed. The added phone capability blurs the lines between pads and SmartPhones, adding value at reasonable cost.

The combination of multiple core and faster processor speeds, higher resolution multi-touch capacitive displays, and added functionality of built-in 2G-3G phone capabilities is now propelling Android devices from top brand names to white box clone suppliers to compete effectively with Apple. It looks likely that Apple will be surpassed in unit volume the notepad segment similar to the eclipse of the iPhone by Android devices.